The far-reaching reform of the tax system has 'critical' weaknesses that need
'immediate attention', a leaked report discloses.

The project, referred to as Real Time Information, will support the Government’s welfare reform.

However, it has been given an “amber” rating by Whitehall troubleshooters, who warn of possible further downgrades. The project is supposed to give HM Revenue and Customs monthly financial readings. Currently, the tax authorities get the information only at the end of every financial year.

The change is part of Iain Duncan Smith’s Universal Credit benefits reform.

It will allow welfare claimants who work to keep more of their benefit payments, adjusting payments as earnings change. A pilot project is to begin this month, with several companies expected to start supplying tax authorities with salary data every time they pay their staff.

Work on the project was recently reviewed by the Major Projects Authority, a team of Whitehall experts.

Instead of giving the scheme a “green” assessment, indicating it is proceeding according to plan, the experts rated it “amber”, for a significant risk of failure. The Daily Telegraph has seen a copy of the Change Programme Dashboard, which senior tax authority managers use to track progress on important projects.

The paper says the amber reading “highlighted two critical recommendations which required immediate attention”. Firstly, “the programme director role should be confirmed as a full-time appointment with immediate effect”. Tax authorities were also told that outstanding contracts should be “settled without further delay”. The projects authority is to review the project again “to reassess delivery confidence”.

If progress has not been made, the amber assessment “is likely to be significantly lowered”. The “dashboard” also shows that tax authority managers have identified a problem with data analysis.

The report could hamper reforms proposed by Mr Duncan Smith, the Work and Pensions Secretary. Ministers insist that the Universal Credit system can start next year.

Stephen Barclay, a Conservative member of the Commons public accounts committee, said the warnings must be taken seriously. He said the projects authority must now “drive through the changes that need to be made”.

A tax authority spokesman said: “Preparations for the pilot, which begins this month, are going well.”